Cross-posted from ANZ.
It was another relatively quiet session overnight, with US markets closed for the Columbus Day holiday. Markets generally traded within tight ranges, with US equities erasing earlier declines amid tentative signs of progress in resolving the US fiscal impasse. In currency markets, AUD/USD rallied on reports that Republicans and Democrats were close to a deal to raise the debt ceiling. AUD/USD is currently trading around USD0.9500.
- US Senate negotiations accelerated overnight, with top Republicans and Democrats confident of reaching an agreement on the fiscal impasse. However, uncertainty remains as to whether bipartisan support in the Senate will be enough to force House Republicans to bring any Senate compromise to a vote, given the insistence by some House conservatives that major elements of the health care law need to be delayed. President Obama and Vice President Biden were due to meet with Democratic and Republican leaders in Congress later today, with a White House Statement urging Congress to pass a bill to raise the debt ceiling and to reopen the government. The statement also stressed that the President will not “pay a ransom for Congress reopening the government and raising the debt limit”.
- China’s September CPI inflation was 3.1% y/y (mkt: 2.8% y/y), the fastest rate in seven months. The result was driven by sharp increases in food prices and rental costs. The producer price index (PPI) declined 1.3% y/y in September, remaining in negative territory for the 19th consecutive month.
- In Australia yesterday, new housing finance declined in August, reflecting lower owner-occupier finance and unchanged investor finance. Both the value and volume of housing finance commitments excluding refinancing fell (‑0.9% m/m and -5.3% m/m, respectively). First home-buyer finance continued to decline, largely reflecting the expiration of Victorian government first home-buyer grants for existing properties in July.
- In Australia today, the key event will be the Minutes of the RBA’s October Board meeting released at 11:30AEDT. With markets now pricing in less than a 40% chance of another rate cut, the Minutes will be scrutinised to determine if the RBA has further reduced its easing bias.
OVERNIGHT MARKETS UPDATE
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- US Treasuries were closed for the Columbus Day holiday.
- Australian bond futures sold off across the curve in late trade on news that a deal on the US debt ceiling impasse was close. The implied 3‑year yield rose 5bps to 3.15% and the implied 10-year yield rose 6bps to 4.14%.
- US equities rose throughout the session after gapping lower at the open. The S&P 500 and Dow Jones both closed 0.4% higher at 1,709 and 15,291, respectively. The NASDAQ rose 0.6% to 3,814.
- European equities were mostly only marginally higher overnight. The Euro Stoxx 50 rose 0.1% to 2,978 and the FTSE 100 closed 0.3% higher at 6,508. The German DAX was broadly unchanged at 8,724.
- Australian SPI futures rose 0.8% to 5,249.
- In currency markets, risk-exposed currencies rallied in late New York trade in thin volume on news that a deal to avert a US default was getting close (see above). With markets somewhat thinned by the Columbus Day holiday, the AUD and NZD both broke to the topside, with the AUD trading above USD0.9500 for the first time in just under a month. The NZD outperformed and trading desks reported a market caught long AUD/NZD which proceeded to take out downside stops. The reaction in the core currencies was less obvious, probably pointing to the less concentrated nature of positioning in most core pairs and greater liquidity. Today in Asia, will be important for the release of the RBA minutes, with markets watching for some indication that the Bank now retains a neutral bias, a development which will sanction current levels in the AUD and implied pricing in money markets.
- Indicative trading levels: AUD 0.9496, AUD/EUR 0.7001, AUD/GBP 0.5939, AUD/NZD 1.1345, AUD/JPY 93.60
- EUR/USD 1.3565, GBP/USD 1.5989, USD/JPY 98.56
- Oil prices were mixed overnight but US crude rose on hopes of a resolution to the US budget crisis. WTI futures were 0.3% higher at USD102.13 per barrel but Brent futures fell 0.3% to USD110.79 per barrel.
- The spot gold price a marginal 0.2% to USD1,274.5 per ounce.
- Base metals prices were mostly higher overnight amid the slight increase in risk sentiment. Copper (+0.8%) rose as strong copper import data from China boosted the demand outlook. Nickel (+0.7%), lead (+1.6%) and zinc (+0.9%) all closed higher, while aluminium (-0.3%) declined modestly. Meanwhile, thermal coal futures rose 0.5% to USD83.7 per tonne and the spot iron ore price was 0.4% higher at USD133.6 per tonne.
- Agricultural commodities prices were mixed overnight. Corn (+0.7%) and soybeans (+0.5%) both rose as rains are expected to stall the US Midwest harvest this week to be followed by cold crop-damaging weather in some areas of the Midwest. Cotton (+0.3%) and sugar (+0.6%) both rose, while wheat (‑0.5%), palm oil (-0.8%) and cocoa (‑1.2%) fell. Canola was unchanged.
